Data: What Happens to PR Firms in a Recession, a 2009 Forecast

Left: Access the Slides from the USC report on The Impact of the Current Economic Situation on Public Relations/Communication

The USC School of Communication contacted me about their latest study based of 200 PR agencies to find out the impacts of their business during a recession. The report and press release have lots of great data and there are dozens of graphs in the presentation, so in the usual web strategy style, I’ll boil down what’s important to business folks –from an industry perspective.

By The Numbers: Key Takeaways from Forecast Report of PR Firms

Budgets: Half of firms to suffer from 20% reduced budgets
The report indicates that “Half (51%) of responding organizations indicated their FY 2009 PR/communication budgets were smaller than what they actually spent in fiscal 2008, by an average of 19%” (reduction rate). This means that half of PR agencies have had a reduction, right about 20%. On the good side, there was some growth “Surprisingly, 18% of the responding organizations indicated that their PR/Communication budgets actually increased from FY 2008 to FY 2009, by an average of 14.2%.” Although the report warns of some caveats in comparing year to year growth. The remainder of respondents (31%) showed no change, although there’s some weighing to the overall economic changes.

Layoffs: 20% to expect headcount reductions
The report indicates that most will not have any changes “For the current (2009) fiscal year, 73% anticipate no changes in staffing levels”. Although there some anticipate growing their company, and will increase the staff size 15% “7% anticipate growth, of about 15% on average”. Perhaps the most disconcerting numbers is that one fifth plan to have staff reductions “A fifth (20%) anticipate that staff reductions”. How many will be laid off? according to this survey, on average, over a quarter of the company will be cut “averaging to 27%, will occur at some point during the year.”

Compensation: 21% will reduce salary
The report reads that: “For 2009, 56% anticipate compensation freezes, while 21% believe they will have to reduce compensation by an average of 11.7%”. Over one fifth of firms will reduce their compensation, and take about a tenth of their paycheck slices. Now is not the time to buy that new car.

Summation of Findings: What You Should Do
Things don’t look so rosy for the PR industry, but they’re not alone, this is impacting just about every other industry. 20% will have headcount reductions and same with compensation. Actually, that number (20%) is what I’m hearing across other industries, it seems to be a common number that I’m hearing from other sales and executives their being impacted with. That’s of course, small data bits, and not anything scientific. The key trend here is that across the board, most firms will trim their workforce, have less money to work with, and most will not be getting raises.

PR Professionals Must Skill Up
Let’s be honest, those in the 20% that are going to get cut are those that aren’t delivering value to clients –or aren’t guiding the company in a strategic way. Let’s focus on the account folks first. Those that are customer facing and are doing the work for brands, need to stay current with their current skill set. If you’ve not developed social media skills by now in 2009, you are behind, and those that already experimented and folded into practice have a couple of notches in their belt, and experience matters second to having a strategy.

Secondly, those that are management need to quickly adjust the PR firm to offer more outputs for clients than ever before. Understanding not only how to deliver the traditional PR deliverables of strategy, positioning, influence, and monitoring need to also be aware of the changes that are happening in the digital realm as social adoption increases during a recession, and the growth of mobile devices. Update: See which firms score well on the social front, from ZDnet and Cece Lee’s projects.

Buyers Should Renegotiate PR Contract
This one is going to raise hell with PR professionals, but if you’re a buyer of PR agency services, you should renegotiate your fees and contract at a reduced rate. The market simply has changed, and as with every other industry, demand and supply, cause changes. Now, this isn’t to suggest you cut rates and lose the quality of service you’re getting, but figure out what areas the firm is not providing value and reduce those services. On the other hand, you can try to increase your budget with these firms, and ask for services greater than you could have afforded in an upswing, now that you, as the buyer, are in clear control. Update: A marcom director at a large tech company tweeted she already renegotiated her contract with their PR firm, locking them in for a year, at probably a reduced rate, this is both good for the firm and brand as it keeps the cash flowing.

Lastly, it’s not as bad as it sounds, it could be worse, you could be in the newspaper business.

That’s my take on this helpful report from USC, I’d love to hear your reactions what PR firms, PR professionals, and buyers should do.